Lithuania is the latest European country to wriggle out of the grip of Russia’s state-owned gas behemoth Gazprom. The Russian energy giant has a 37 percent stake in Lithuania’s national gas utility, but the former Soviet state is taking advantage of a new EU rule to restructure this arrangement and nationalize its pipelines.
The EU requires energy companies to divide supply and transmission. This prevents a vertical monopoly and fosters competition. (Incidentally, countries like Mexico could use a rule like this.) Lithuania is using the rule to spin off its pipelines into another company which will be wholly owned by the government, leaving Russia out in the cold. And it doesn’t look like there’s a lot that Moscow can do about it.
It’s the latest blow to Gazprom, which must be feeling dizzy after a rapid sequence of similar setbacks over the past few years. Emboldened by the 2008 financial crisis, Europe began to demand that its deals in place for Russian gas be restructured. Meanwhile, the US shale boom allowed Europe to import cheap American coal in much greater quantities than before. In countries like Ukraine and Poland, the development of domestic shale gas has the potential further wean Europe away from dependence on Gazprom. Across the Continent, the proliferation of new energy alternatives is undermining Russia’s ability to draw up long-term, high-priced contracts with neighboring states.
This is exceedingly bad news for Russia, which relies on Gazprom for 20 percent of its government revenues. The company’s profit fell nearly 10 percent last year, and the way things are going, things are only going to get worse. But while America celebrates its shale success and Europe delights in its relative freedom from onerous Gazprom contracts, the world should be wary of what Moscow will do now. Back a bear into a corner and you might not like what comes next.
[Vladimir Putin image courtesy of Getty Images]